A Paucity of Perky Picks

 | Jul 24, 2013 | 4:27 PM EDT
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The good news for the bulls was that selling didn't accelerate into the close but there was steady selling all day. It is practically a cliché that we see toppy action on the day Apple (AAPL), one of the biggest laggards this year, finally puts up good numbers and performs well.

Typically, after a day like this the bears are emboldened and start to talk about a top forming. When you are as anticipatory as the bears have been, the natural inclination is to quickly embrace the poor action and declare the start of the downtrend they have been predicting for so long.

It is possible that we have started a topping process, but there isn't enough evidence yet. A market that has run like this deserves some downside now and then. That used to be normal, but it only seems to move in one direction these days rather than the normal ups and downs within the context of a bigger trend.

The one thing that does make me a bit negative is the paucity of perky picks. The pockets of momentum have been drying up, and upside movement is narrowing. Facebook (FB) gapped up big on a good report, but AAPL didn't do much to help the broader market, and many of the most important reports are already out.

My main hope is that we have a little more intensity and that probably isn't going to happen unless we have more selling pressure to shake things up. The upside is just becoming increasingly difficult to embrace as we continue to run with so little consolidation.

Have a good evening. I'll see you tomorrow.

July 24, 2013 | 2:05 PM EDT

Get Your Shopping List Ready

  • There should be better opportunities in individual stocks soon.

The dip buyers were unable to turn the market midday again and a trend day to the downside is under way. Breadth has been dropping steadily and sell stops are kicking in as traders move to protect recent gains. Every major sector is down but Apple (AAPL) is helping to hold up the Nasdaq singlehandedly. One thing in particular is worrisome today: bond yields are climbing again and ProShares UltraShort 20+ Year Treasury (TBT) is fast approaching recent highs.

As I mentioned earlier, I'm rooting for downside as we so badly need resets for better trading. Over the past week, momentum has been slowing but we have been holding steady, which has made new stock picks nearly impossible. At least when we have broad selling like today, good stocks will find support levels that we can trade.

Whenever we have a day like this, plenty of bears are ready to proclaim that the top is in and it's straight down from here. That is possible but, typically, it will take a while for a real top to form. One bad day after weeks of positive action isn't enough to kill the market. It will take a few failed bounces and bull traps for things to gain downside traction.

If you don't already have a good cash reserve, I'd be looking to add some. Not because I think the market is going to fall apart right away, but because there should be better opportunities in individual stocks soon. Be ready for some shopping down the road.

July 24, 2013 | 10:23 AM EDT

Rooting for the Bears

  • Time to shake out the stubborn bulls.

For the second straight day, there's gap-and-fade action at the open. The 18-point move in Apple (AAPL) is keeping the Nasdaq green, but the other indices are struggling to stay positive. Breadth is slipping, now running around 2,300 gainers to 2,600 losers.

It would be fitting if a good earnings report from AAPL marks a short-term top. It has been a major laggard all year and it would be ironic if the market turns when it finally comes through. It just goes to show how AAPL is no longer the leader it once was.

I've complained about the difficulty of putting money to work, so I'm feeling good about the pullbacks this morning. There's a tendency to come back at midday but, so far, it has been straight down, and that is causing nervousness among bulls protecting profits.

I'm not holding much, but I did make a few sales this morning, most notably Sarepta (SRPT), which turned nearly 30 points from its premarket highs. The news fooled the bulls at first, but it will set up again down the road. I'm keeping a token amount to make sure I don't lose track of it.

I'm rooting for the bears, as we really need a good shakeup for better trading. Momentum has been drying up and it will help if we can shake out the stubborn bulls who seem to believe the market will never go down again.

July 24, 2013 | 8:30 AM EDT

Where Have All the Setups Gone?

  • No chance to put money to work.

Adopting the right attitude can convert a negative stress into a positive one. --Hans Selye

It has been a while since Apple (AAPL) has mattered but its better-than-expected earnings are helping to boost the indices this morning. Overseas markets were mixed due to some weak data in China but better-than-expected PMI reports in Europe. But relief over AAPL is giving us upbeat early action.

While the bulls are happy to have another positive start, many traders are cringing as this one-way action has made trading extremely challenging. There is just no way to enter the market easily at this point. Virtually, everything is extended and there are few bases or setups. If you have been taking profits into strength, your cash levels have to be growing quickly as there are few easy opportunities to redeploy capital now.

I've been complaining about this action for a while but it isn't getting better. Uptrends used to be much easier to trade as there was normal volatility that would allow for entrees. For whatever reason, the market has unrelenting bids that keep pullbacks extremely shallow. If you wait for pullbacks or setups, you never have much chance to put money to work. What accentuates the problem is that volume is low and the indices are clearly technically extended.

While it is easy to complain, our job is to navigate this action as best we can. The best approach has been to forget market timing and stick with the trend as best you can. If bulls are complaining about how hard it is to keep up with the market, you can just imagine what the bears are feeling. The top-callers have been destroyed and are so far underwater that they need a major crash just to get back to even.

My game plan for dealing with this has been to keep digging for buyable stocks. Some traders have little fear of chasing extended moves but it is not my style, which makes this lopsided market action much more challenging. There just aren't many setups left at this point.

The easy thing to do in this market it so call a top, and that is what an increasing number of pundits are doing. It has to correct sooner or later, and there is much risk in predicting that it is going to happen fairly soon. Of course, that is what the bears have been thinking for weeks and it has cost them a lot of money.

I've always found that trying to nail exact turning points is not productive. You can't do it with any great precision and the opportunity cost is tremendous. You miss too many individual opportunities when you obsess over the indices.

We have some big movers in the early going such as AAPL, Sarepta (SRPT) and Lumber Liquidators (LL). Lately, however, we haven't seen much energy after the start. The bears are trying harder to fade strength and it looks like momentum is slowing in many areas. But the trend remains to the upside and ultimately that is all that matters.

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